TODAY’S STUDY: THE COST OF SOLAR NOW

Tracking the Sun III; The Installed Cost of Photovoltaics in the U.S. from 1998-2009
Galen Barbose, Naïm Darghouth and Ryan Wiser, December 2010 (Lawrence Berkeley National Laboratory)

Executive Summary

As the deployment of grid-connected solar photovoltaic (PV) systems has increased, so too has the desire to track the installed cost of these systems over time and by location, customer type, system characteristics, and component. This report helps to fill this need by summarizing trends in the installed cost1 of grid-connected PV systems in the United States from 1998 through 2009 (updating two previous reports with data through 2007 and 2008, respectively), and providing preliminary cost trends for systems installed in 2010. The analysis is based on installed cost data for approximately 78,000 residential and non-residential PV systems, totaling 874 megawatts (MW) and representing 70% of all grid-connected PV capacity installed in the United States through 2009.

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Key findings of the analysis are as follows:

• The capacity-weighted average installed cost of systems completed in 2009 – in terms of real 2009 dollars per installed watt (DC-STC) and prior to receipt of any direct financial incentives or tax credits – was $7.5/Watt, virtually unchanged from 2008, and $0.3/W below the averages in 2006 and 2007. From 1998-2009, capacity-weighted average installed costs declined by about 3.2% (or $0.3/W) per year, on average, starting from $10.8/W in 1998.

• Preliminary cost data suggest that a significant decline in average installed costs occurred in 2010, with the average cost of systems installed through the California Solar Initiative (CSI) program declining by $1.0/W during the first ten months of 2010 relative to 2009, and the average cost of systems installed in New Jersey declining by $1.2 /W during the first six months of 2010 compared to 2009.

• Installed costs lagged wholesale PV module price movements from 2007-2009. Over this period, wholesale PV module prices declined by $1.3/W (based on Navigant Consulting’s Global Power Module Price Index), while total installed costs declined by only $0.2/W. The preliminary 2010 cost data cited above, however, suggests that the drop in wholesale module prices during the preceding years translated into a large reduction in installed costs in 2010.

• Both module and non-module costs have declined significantly over time. From 1998-2009, wholesale module prices dropped by $1.9/W (40%), while from 1998-2007, implied non module costs (which may include such items as inverters, mounting hardware, labor, permitting and fees, shipping, overhead, taxes, and installer profit) fell by $2.5/W (40%).

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• The year-on-year trend in average installed cost varied among system size ranges. From 2008 to 2009, the average cost of systems in the 5-10 kW and 10-100 kW size ranges declined by $0.4/W and $0.3/W, respectively, but remained flat for systems <5 kW and 100-500 kW in size, and rose by $0.3/W for systems >500 kW.

• The distribution of installed costs within a given system size range narrowed significantly from 1998 to 2005, with high-cost outliers becoming increasingly infrequent, indicating a maturing market. However, little if any further narrowing of the cost distribution occurred from 2005 through 2009.

• PV installed costs exhibit significant economies of scale, with systems ≤2 kW completed in 2009 averaging $9.9/W, while >1,000 kW systems averaged $7.0/W (or about 29% less). Two multi-MW, utility-scale PV systems installed in 2009 that are not included in the primary data sample, but for which cost data were obtained through public sources, had significantly lower installed costs ($2.5/W and $5.1/W) than the >1,000 kW systems in the primary data sample.

• Component-level cost data for systems installed in 2009 indicate that module and inverter costs were relatively invariant across system sizes, while the remaining set of other costs were $0.5-0.6/W lower for 10-100 kW systems than for either smaller or larger systems. This contrasts with trends from the preceding two years, when average module costs were lower for larger systems.

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• International experience suggests that greater near-term cost reductions may be possible with increased market scale in the United States, as the average installed cost of 3-5 kW residential PV installations in 2009 (excluding sales/value-added tax) was significantly lower in both Germany ($4.7/W) and Japan ($5.9/W) than in the United States ($7.7/W).

• Average installed costs vary widely across states; among ≤10 kW systems completed in 2009, average costs range from a low of $7.1/W in Texas to a high of $9.6/W in Minnesota. This variation in average installed cost across states suggests that, in addition to absolute
market size, other state and local factors (e.g., permitting requirements, labor rates, and sales tax exemptions) strongly influence installed costs.

• The average installed cost of residential systems installed in 2009 was lower than that of other similarly sized systems. Compared to commercial systems, for example, residential systems had average installed costs that were lower by approximately $0.5/W within both the 5-10 kW and 10-100 kW size ranges. In contrast, public sector systems installed in 2009 had relatively high average installed costs, exceeding the average installed cost of commercial systems by $0.7/W for systems in the 10-100 kW size range and by $0.8/W for systems in the 100-500 kW size range.

• The new construction market offers significant cost advantages for residential PV; among 1-3 kW residential systems funded through two California programs (the New Solar Home Partnership Program and the California Solar Initiative) and installed in 2009, PV systems installed in residential new construction cost $1.6/W less than comparably-sized residential retrofit systems (or $1.9/W less if focused exclusively on rack-mounted systems).

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• PV systems with thin-film modules had higher average installed costs in 2009 than comparably-sized crystalline systems ($0.8/W higher among ≤10 kW systems and $0.4/W less among 10-100 kW systems).

• Average installed costs were lowest for systems with mid-range module efficiencies in 2009. Among systems ≤10 kW, for example, systems with module efficiencies of 15-16% had an average installed cost of $7.4/W, compared to $8.2/W for systems with module efficiencies ≤12% and $8.3/W for systems with module efficiencies >18%.

• Among ≤10 kW systems installed in 2009, those with tracking (either single- or double-axis) had average installed costs $1.7/W (or 21%) higher than fixed-axis systems (both roof mounted and ground-mounted).6 This cost differential may reflect both the additional cost of tracking equipment, as well as the increased cost associated with ground-mounting, which is more prevalent among tracking systems than fixed-axis systems.

• The average cash incentive provided by the state/utility PV incentive programs in the sample ranged from $1.2-$2.2/W for systems installed in 2009, depending on system size. This represents up to a $0.3/W decline from 2008 and a $2.0-$3.3/W decline from the peak in 2002.

• In 2009, the average combined after-tax value of state/utility cash incentives plus state and federal investment tax credits (ITCs) – but excluding revenue from the sale of renewable energy certificates or the value of accelerated depreciation – was $3.9/W for both residential and commercial PV.

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• In 2009, the average net installed cost faced by PV system owners – that is, installed cost minus after-tax incentives – stood at $4.1/W for residential PV and $4.0/W for commercial PV. For residential PV, this represents an historic low, and is $1.3/W (or 24%) below the 2008 average, reversing the trend of the preceding several years during which average net installed costs had been slowly rising. For commercial PV, the average net installed costs in 2009 was virtually unchanged from the preceding two years, and was up slightly (by $0.4/W or 10%) from the all-time low of $3.6/W in 2006. This represents roughly a 37% increase for residential PV relative to 2008, and is a consequence of the lifting of the dollar cap on the federal residential ITC for residential systems installed after January 1, 2009. In contrast, the combined after-tax incentive for commercial PV in 2009 remained effectively unchanged from the year prior and was slightly below its peak of $4.2/W in 2006.

• Financial incentives and net installed costs diverged widely across states in 2009. Among residential PV systems completed in 2009, the combined after-tax incentive ranged from an average of $3.5/W in California to $5.9/W in New York, and net installed costs ranged from an average of $2.4/W in Texas to $5.5/W in Minnesota. Incentives and net installed costs for commercial systems varied similarly across states.

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Introduction

Installations of solar photovoltaic (PV) systems have been growing at a rapid pace in recent years. In 2009, approximately 7,500 megawatts (MW) of PV were installed globally, up from approximately 6,000 MW in 2008, consisting primarily of grid- connected applications. With 435 MW of grid-connected PV capacity added in 2009, the United States was the world’s fourth largest PV market in 2009, behind Germany, Italy, and Japan. Despite the significant year-on-year growth, however, the share of global and U.S. electricity supply met with PV remains small, and annual PV additions are currently modest in the context of the overall electric system.

The market for PV in the United States is driven by national, state, and local government incentives, including up-front cash rebates, production-based incentives, requirements that electricity suppliers purchase a certain amount of solar energy, and federal and state tax benefits. These programs are, in part, motivated by the popular appeal of solar energy, and by the positive attributes of PV – modest environmental impacts, avoidance of fuel price risks, coincidence with peak electrical demand, and the possible deployment of PV at the point of use. Given the relatively high cost of PV, however, a key goal of these policies is to encourage cost reductions over time. Therefore, as policy incentives have become more significant and as PV deployment has accelerated, so too has the desire to track the installed cost of PV systems over time, by system characteristics, by system location, and by component.

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To address this need, Lawrence Berkeley National Laboratory initiated a report series focused on describing trends in the installed cost of grid-connected PV systems in the United States. The present report, the third in the series, describes installed cost trends from 1998 through 2009, and provides preliminary cost data for systems installed in 2010. Importantly, in focusing on installed cost, this report does not address other factors that may also influence the levelized cost of electricity from PV, such performance improvements and financing costs.

The analysis is based on project-level cost data from approximately 78,000 residential and nonresidential PV systems in the U.S., all of which are installed at end-use customer facilities (herein referred to as “customer-sited” systems). The combined capacity of systems in the data sample totals 874 MW, equal to 70% of all grid-connected PV capacity installed in the United States through 2009 and representing one of the most comprehensive sources of installed PV cost data for the U.S. The report also briefly compares recent PV installed costs in the United States to those in Germany and Japan. Finally, it should be noted that the analysis presented here focuses on descriptive trends in the underlying data, serving primarily to summarize the data in tabular and graphical form; later analysis may explore some of these trends with more-sophisticated statistical techniques.

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The report begins with a summary of the data collection methodology and resultant dataset (Section 2). The primary findings of the analysis are presented in Section 3, which describes trends in installed costs prior to receipt of any financial incentives: over time and by system size, component, state, system ownership type (customer-owned vs. third party-owned), host customer segment (residential vs. commercial vs. public-sector vs. non-profit), application (new construction vs. retrofit), and technology type (building- integrated vs. rack-mounted, crystalline silicon vs. thinfilm, and tracking vs. fixed-axis). Section 4 presents additional findings related to trends in PV incentive levels over time and among states (focusing specifically on state and utility incentive programs as well as state and federal tax credits), and trends in the net installed cost paid by system owners after receipt of such incentives. Brief conclusions are offered in the final section, and several appendices provide additional details on the analysis methodology and additional tabular summaries of the data.

Conclusions

The number of photovoltaic systems installed in the United States. has been growing at a rapid pace in recent years, driven in large measure by government incentives. Given the relatively high historical cost of PV, a key goal of these policies has been to encourage cost reductions over time. Out of this goal arises the need for reliable information on the historical installed cost of PV. To address this need, Lawrence Berkeley National Laboratory initiated a series of reports focused on describing trends in the installed cost of grid-connected PV systems in the United States. The present report, the third in the series, describes installed cost trends from 1998 through 2009, based on project-level data for approximately 78,000 grid-connected systems deployed across 16 states.

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Available evidence confirms that the installed cost of customer-sited PV systems has declined substantially since 1998, though both the pace and source of those cost reductions have varied over time. Prior to 2005, installed cost reductions were associated primarily with a decline in non module costs. Starting in 2005, however, cost reductions began to stall, as the supply-chain and delivery infrastructure struggled to keep pace with rapidly expanding global demand. Starting in 2008 and continuing into 2010, wholesale module prices began a steep downward trajectory, in response to expanded manufacturing capacity and the global financial crisis. These reductions in module prices, however, did not translate into a noticeable reduction in average installed costs for PV systems in 2009, perhaps reflecting a natural lag between the time that PV system installation contracts are signed and when systems are installed. Preliminary evidence does suggest, though, that average installed costs for PV systems installed in 2010 will be substantially lower than in 2009. Those trends will be more fully explored in the next edition of this report.

The historical trend towards declining installed costs, along with the narrowing of cost distributions, suggests that PV deployment policies have achieved some success in fostering competition within the industry and spurring improvements in the cost structure and efficiency of the PV delivery infrastructure. Moreover, the fact that states with the largest PV markets also appear to have somewhat lower average costs than most states with smaller markets lends credence to the premise that state and utility PV deployment policies can affect local costs. However, even lower average installed costs in Japan and Germany suggest that deeper near-term cost reductions may be possible. Indeed, further cost reductions will be necessary if the PV industry is to continue its expansion in the customer-sited market, given the desire of PV incentive programs to ratchet down the level of financial support offered to PV installations.